The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Due to the growing number of banks that are included in the Bangko Sentral ng Pilipinas’s (BSP) prompt and corrective action (PCA) list, the central bank is stepping up its supervisory policy to target bank owners, directors and major shareholders of ailing banks.
Included among those who will be given a five-year ban on engaging in banking and other BSP-regulated entities, like money changers, pawnshops and remittance centers, are those who will not cooperate with the BSP in initiating remedial actions for problematic banks.
BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. said the ban is aimed at those who don’t cooperate while remedial processes are ongoing in their banks.
“For those who are cooperative, there is no ban,” Espenilla said.
According to the BSP, it is intensifying the bans it imposed on bank owners and major shareholders who are found uncooperative in addressing the problems hounding their banks, which is the reason they were added to the PCA list.
Espenilla said the ban is now effectively implemented to serve as a warning to bank owners who do not cooperate in finding a remedy for their banks’ problems.
The PCA is considered the intensive care unit of banks that have been found to be suffering from unexplained losses, a dwindling capital adequacy ratio, increasing non-performing loans, and a falling current and savings account (Casa) deposit ratio.
A bank usually fails when the market value of its assets declines to a value that is less than the market value of its liabilities.
The insolvent bank either borrows from other solvent banks or sells its assets at a lower price than its market value to generate liquid money to pay its depositors on demand.
The inability of the solvent banks to lend liquid money to the insolvent bank creates panic among the depositors, as more depositors try to take out cash deposits from the bank.
The scenarios mentioned are the most common warning signs the BSP sees before deciding to put a bank on the PCA list. Monetary Board Member Dr. Felipe Medalla said that, in his six years of service on the board, he estimates that only less than 30 percent of those listed were able to get out of the list.
“More often than not, banks on the list go directly to the PDIC (Philippine Deposit Insurance Corp.), rather than do business again,” Medalla said in an earlier interview.
Like Espenilla, most of those occupying high positions at the bank have been remiss of their duties, thus, bankruptcy is very high. “When we say that the owner needs to put additional capital, but doesn’t reply, that is the first sign that the owner is not cooperative,” he added.
Most of the banks placed on the PCA list are either rural banks or cooperative banks, the official said.
“The management and board of directors of banks that fail due to mismanagement may be temporarily disqualified from banking for at least five years,” Espenilla revealed to The Daily Tribune newspaper in an exclusive interview.
The BSP issued the warning after seeing that the number of banks placed on the PCA list has never waned, and that the trend of more rural banks added to the list continues.
Because of this scenario, the central bank reminded owners, shareholders and directors about the half-decade ban.
Espenilla clarified that bank owners who don’t have a role in the collapse of the bank will not be targeted by the BSP.
“The BSP doesn’t target owners, per se, unless they are in management or are directors,” the deputy governor said.
At present, the BSP is supervising and regulating 34 universal and commercial banks, 68 thrift banks and 511 rural banks. The BSP is also the regulator of all pawnshops, money changers and remittance centers.